This action was removed to this court from the Superior Court of New Jersey. The plaintiffs, Irving Kahn and Peter Levathes, are citizens and residents of New York; there are two individual and two corporate defendants: Abraham Massler, James Wilson,
*fn1"
Glassy Finish Process Co., and Bestway Products, Inc., New Jersey corporations.

Massler, acting individually and on behalf of Wilson, Glassy Finish, and Bestway for the purpose of defrauding plaintiffs of the profits of their ideas, represented to Simon and Schuster that he and Wilson, or the defendant-corporations were the owners of the process. Massler, Wilson, and Simon and Schuster having conspired to defraud plaintiffs caused a cancellation of the sales contracts for undersized phonograph records held by Brown and caused Brown to convey his interests in the records known as 'Golden Records' to Simon and Schuster; also, Massler and Wilson undertook to manufacture undersized records for Simon and Schuster for a consideration not known to plaintiffs, and Massler and Wilson profited and continue to profit thereby. Defendants' manufacture and sale of the undersized phonograph records manufactured by the injection molded process is a breach of the confidence and trust reposed in them by the plaintiffs during the time they entered in the joint venture, and was in fraud of the rights of ownership of plaintiffs.

After discussion, a motion was passed authorizing and directing the officers to issue thirty shares of stock, respectively, to Massler, Manovill, and Merin for services rendered, fully paid, and non-assessable; fifty-one shares, respectively, to Kahn and Levathes for services rendered and because they '* * * are to cause to be conveyed to this Corporation certain properties now owned by Dinky Disks Corporation.'
*fn8"

During the two weeks following the April 11, 1947, corporate meeting, Massler's work on behalf of Miniature is evidenced by documents showing that Wilson received a cost estimate for 8-, 16- and 30- cavity injection molds; Bestway computed its cost estimate for the manufacture of '* * * 2-inch records made in vinyl to agree with samples submitted;' Bestway ordered an 8-cavity mold for a 2 1/8 inch diameter record. From April 23, 1947, to June 14, 1947, Miniature paid out approximately $ 2,000 for the mold, masters and stampers, phonograph, art work, and engineering and drafting work. The checks were signed by Massler and Merin on behalf of Miniature. During March, April, May and June, 1947, a recording company rendered services to the group, for which Miniature paid $ 220.65 and Kahn on Sept. 30, 1947, paid $ 199.12; in May and June 1947, the group ordered from another company masters, mothers and stampers, for which Kahn on October 1, 1947, paid $ 193; other payments by Kahn were in October and November, totaling $ 665 for recording artists and for the services of a patent law firm which firm had been retained by Dinky Disks Corporation and Kahn and Levathes individually. On August 22, 1947, Levathes paid $ 400 to the law firm, $ 1,000 to Manovill, Merin, and Massler, respectively, and $ 1,050 to Bestway. The payments to the three men were repayments of loans they had made to Miniature; the payment to Bestway was for the expansion of the eight-cavity, 2 1/8' mold to thirty cavities.

In May or June, 1947, Mr. Skouras of Twentieth Century-Fox told Kahn and Levathes they were spending too much time on their outside project. After conferences among Kahn, Levathes, Manovill, Merin, and Massler, they decided to redefine their relationship to one another. Since Kahn and Levathes had to decrease the extent of their activity as members of the group, '* * * we proposed that we readjust our equities, and around about this time Massler and Wilson had gotten very active; Manovill not too active, because there wasn't much left for him to do, and Merin on the completion of the phonograph had accomplished what he set out to do. * * *.' Manovill and Merin decided to withdraw from the group.
*fn9"

Massler knew of the contract before it was executed. About one week or two earlier, plaintiffs and Brown went to Massler's factory, Glassy Finish Process Company, in Newark, New Jersey. It was made clear to Brown that Massler was the manufacturer, and he assured Brown that records would be delivered. At that time, the arrangement between plaintiffs and Massler was that he would continue as the manufacturer for the licensees. Plaintiffs and Massler were unable to agree upon the price at which he would manufacture, except that his price would be consistent with good business principles and a fair profit.

In the evening of the day of the execution of the license contract, plaintiffs, Massler, Brown, Weiss, and Kieffer dined at a hotel in New York City. During the dinner, Massler and the licensees decided to use a 30-cavity mold to manufacture the records; the licensors were to pay Massler for the cost of expanding the original 8-cavity mold to thirty cavities. Although Massler had not yet produced any marketable records, he had produced samples and the group very anxiously awaited the completion of the tool and die which would have made the actual production model.

During the dinner, Brown wanted to know the exact subject matter of the license contract. When there was a discussion concerning Schedule A, Levathes referred to Massler and said, "Here is our Schedule A.' * * * We referred to Massler all evening in that form.' Schedule A was '* * * supposed to be what we had from this deal, the tools and dies that we owned, the special process we paid to have developed, and the technique as it could be put on a piece of paper as to what this special process of injection molding in records was.' Despite Kahn's requests and a letter by Kieffer to Massler to produce Schedule A, he never did. He told Kahn that Wilson's technical knowledge was needed to supply the Schedule A information, and he was unavailable.

On March 29, 1948, Shimkin wrote a ten-page memorandum to his boss setting forth the latest developments:

'After several alternate proposals and a come-down from a demand of .005 per record for a five year period, Mendi Brown is agreeable to taking .0025 per record sold for three years, and giving us the option at the end of the three year term to

'1. Buy him out with the difference between his collected royalties and $ 250,000.

'2. Continue paying him .0025 per record made in the 3 year period.

'In return for this he turns over his contracts and all interest in the manufacture of the records, and gives us his services as director for any and all services connected with our recordings exclusively. This makes it a pretty good deal for Mendi Brown -- and considering our costs working without him as gobetween, a pretty good deal for us.

'I suggest we offer him a lesser settlement after three years in lieu of a guarentee sum each year for the three year period. He would certainly not be getting as good a contract that way -- but might very well take -- let us say $ 10,000 a year for three years minimum guarentee against .0025 royalty -- and settle for less at our option.

Our website includes the main text of the court's opinion but does not include the
docket number, case citation or footnotes. Upon purchase, docket numbers and/or
citations allow you to research a case further or to use a case in a legal proceeding.
Footnotes (if any) include details of the court's decision.

Buy This Entire Record For
$7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.